An underwater world for many homeowners

One day in June 2005, a housing economist I was interviewing said he was starting to worry about large numbers of homeowners finding themselves "underwater."

"What's that?" I asked. It was a new term to me. At that time, Americans were practically drunk on housing, buying up real estate as fast as they could, and few voices, especially those in the industry, were willing to spoil the party by suggesting that a hangover was on the horizon.

Maybe you prefer the term "upside down" to underwater, but in either case, it means that you owe more on your mortgage than the house is worth.

Today, though, we seem to be sadly acquainted with the concept, according to a new survey by Harris Interactive, which claims that nearly one-fourth of all people who hold mortgages on their homes think they're underwater.

That's more than 27 million people, the pollster said.

And they're worried, the poll reported. Among those who claimed underwater status, 42 percent say they're "very concerned," and another 38 percent are "somewhat concerned" about not having enough income to cover their costs.

All of this was announced at about the same time that the federal government said it was ramping up its Home Affordable Modification Program, or HAMP, to help some underwater borrowers. Participating lenders may now receive incentives to reduce the principal on loans that are more than 115 percent of the current value of the property, though that life preserver may be tossed too late to help some. The Treasury Department has said it might not have the incentive program fully operational until this fall — if it happens on a broad scale at all.

This week, representatives of the major banks appeared before Congress to talk about the voluntary program and expressed some strong reservations, even though many industry observers had earlier gauged the lenders to be onboard with the HAMP plan. David Lowman of JPMorgan Chase said the estimated $700 billion to $900 billion cost of principal forgiveness would have to be paid for somewhere, and it probably would be priced into the cost of future mortgage lending.

Then there's the simmering-anger issue: U.S. Rep. Jeb Hensarling, R-Texas, wondered during the hearings about the fairness of it.

"It's a policy that says to the citizens who work hard, who live within their means, who save for a rainy day, ‘You are a sucker.' When you're struggling to pay your own mortgage, you shouldn't be forced to pay your neighbors' as well," he said.

The Washington report

The National Association of Realtors recently disclosed it spent $5.6 million lobbying the federal government in the fourth quarter of 2009.

That spending was about one-third more than the $4.2 million spent in the third quarter by the trade group, which is headquartered in Chicago.

Trading spaces, sort of

On the same day this month, two real estate sites separately announced they were going into each other's territory. A popular site for listings of homes for sale announced it would expand into listings of rentals. And a popular site for finding vacation homes for rent announced it had created a marketplace for listings of vacation properties for sale.

The switches reflect a couple of realities in today's market. Trulia.com, in announcing that in addition to homes for sale it would also offer search features for rentals, explained that it believes that Americans these days could go either way — buy or rent — and the company wants to accommodate.

Trulia might be right: Another rentals site, Apartments.com (which is partly owned by Tribune Co., which owns the Chicago Tribune), says it saw "unprecedented growth" early this year, with a spike in traffic to the site and in follow-through calls to landlords. The rental business has struggled mightily in this recession, but it's not hard to picture more would-be homeowners deciding to stay on the sidelines as renters now.

And HomeAway.com, which dominates the vacation-rental market online, unveiled HomeAwayRealEstate.com on the same day. The company, based in Austin, Texas, cites National Association of Realtors data suggesting the market for second homes is recovering. That may well be true, but it's also true that today's economic realities have turned that once-beloved getaway home into a drain on the wallet for many people who are simultaneously trying to rent it and sell it.